The Raise Went Somewhere Else
One line in Friday's employment cost report read 6.4 percent. That is how much more private employers paid for health benefits over the twelve months to September, according to the Bureau of Labor Statistics.
The number that led the coverage was 3.1 percent. That is how fast wages and salaries grew over the same twelve months, down from 3.2 percent in June.
Total compensation rose 0.8 percent in the quarter. The release was written up as wage pressure easing.
The key observation is that total compensation held at 3.4 percent while the wage part of it slowed and the benefit part rose.
The total did not move. What sits inside it did.
Wages and salaries grew 3.1 percent over the year, down from 3.2 percent. Benefit costs grew 3.9 percent, up from 3.8 percent.
The same split shows in the quarter by itself. Wages rose 0.7 percent over the three months and benefit costs rose 0.9 percent.
The index measures what an employer spends on an employee. It does not measure what the employee is paid.
Health benefits are what separate the two. At 6.4 percent, that line grew at twice the pace of private wages in the same release.
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This is a wage-benefit compression.
If a compensation budget is one pot, the insurance bill and the wage line draw on the same money. When the bill grows faster than the pot, the wage line absorbs the difference.
The agency holds employment weights fixed in this index. The result is not a shift between occupations but a shift inside the same jobs.
Whether employers are choosing that trade or simply receiving the bill is not answered here. The index records the split and not the negotiation behind it.
Benefits also cover pensions, paid leave and legally required items. Health insurance is the fastest line inside that 3.9 percent, not the whole of it.
Real wages in private industry fell 0.6 percent over the same twelve months, according to the Bureau of Labor Statistics. The price index the Federal Reserve targets rose 3.6 percent in the year to September.
The gap against prices is what the household lost. The gap against health benefits is where the employer's money went.
Public payrolls show the same split. State and local compensation grew 3.5 percent over the year, with wages at 3.2 percent and benefits at 3.8 percent.
Private industry wages rose 0.8 percent in the quarter against benefits at 0.9 percent. The pattern holds whether the count is civilian or private.
The next reading of this index is due on January 29. Another quarter of the trade will have passed before it arrives.
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Which line gives way
Pay growth for workers who stayed in their jobs. This tracks what people were actually paid without changing employers, and it arrives monthly. A pickup would show the wage side recovering. A slowdown would show the squeeze running on between the quarterly readings. (Source: ADP)
The share of small firms raising compensation. Small employers report every month whether they lifted pay, and they carry insurance costs with less room to absorb them. A rising share would show the wage line holding. A falling share would show it giving way first where the margin is thinnest. (Source: National Federation of Independent Business)
Employer contributions for pension and insurance funds. This counts the benefits side across the whole economy and arrives monthly rather than once a quarter. Continued growth above wages would confirm the split. A slowdown would leave more of the pot for wages. (Source: Bureau of Economic Analysis)
A compensation figure answers the employer's question, not the worker's. One asks what the job costs, and the other asks what the job pays.
Talk soon,
The Playbook Daily
